Intel takes Pentium 4 to 1.7GHz, plans deep price cuts

InfoWorld.com (US)Intel on Monday is set to launch its fastest processor to date, a 1.7GHz Pentium 4, and said it plans to greatly reduce prices on the rest of its Pentium 4 chip family later this month.

At US$352 in bulk quantities, analysts noted that the price of the new processor is unusually low for a new Intel chip. By contrast, its current fastest processor, the 1.5GHz Pentium 4, carried a list price of $637 in March, although that price will be slashed to $256 in an aggressive round of price cuts that will take effect April 29, Intel officials said.

The lower prices aren't unexpected, and reflect a desire on Intel's part to crank up sales of its high-end Pentium 4 products, said Dean McCarron, an analyst with Scottsdale, Ariz.-based Mercury Research Inc.

"When you see [the prices] in the context of Intel really wanting to get Pentium 4 volume up there, it makes a little more sense," McCarron said.

The price reductions won't necessarily lead to cheaper PCs, but should allow end-users to get their hands on a Pentium 4-based system for about the same price they would previously have paid for a Pentium III machine, McCarron said.

"In a $1,100 PC, when you would have gotten the Pentium III, you'll now be able to get a Pentium 4," he said.

The usual vendors are expected to offer PCs based on the newest chip, including Dell, NEC, Hewlett-Packard, Compaq, and IBM, Intel said. It wasn't immediately clear when those systems will go on sale, but some were expected to launch Monday.

In terms of clock speed, the new Pentium 4 widens Intel's advantage over its chief rival, Advanced Micro Devices, whose fastest Athlon processor available today runs at 1.33GHz. Clock speed is only one measure of a chip's performance, but it's one that many shoppers pay close attention to. AMD beat Intel to the 1GHz mark just over a year ago, but Intel has clawed back.

In other price reductions that will take effect April 29, the 1.4GHz and 1.3GHz Pentium 4s, which are priced today at $375 and $268, respectively, will both fall to $193, Intel said. Putting the same price tag on the two slower Pentium 4s is Intel's way of killing off the slower chip and keeping its chip lineup lean, McCarron said.

"It's an incentive to get you to buy the new (1.4GHz) one," he said. "It basically kills off the lower-priced device really quickly."

AMD may not be forced to respond with price cuts of its own, although it's rumored to be planning such a move, McCarron said. If AMD does cut prices it will likely be only on its fastest chips, he said.

Intel downplayed the depth of the price cuts, and said the new 1.7GHz chip will help users to embrace what it calls the "extended PC." The concept sees the PC as a kind of digital hub that's used for storing, exchanging, and viewing content from devices such as MP3 music players and digital cameras, and the faster processor makes it easier to create and manage such content, Intel said.

"Each of these usage models is drawing the PC into the center of the digital world," Anand Chandresekher, vice president and general manager of the Intel Architecture Marketing Group, said at a press briefing on Friday.

Chandresekher also said Intel has been enjoying "good yields" with the Pentium 4, which means its manufacturing process is doing a good job of producing the chips. The company is making Pentium 4s at five fabrication plants today, and plans to increase that number to seven by year's end, Intel said.

But in the wake of free-falling first-quarter revenue, Intel's primary strategy will be to get discounted Pentium 4 chips promptly into affordable PCs. It remains to be seen, however, whether bargain-basement Pentium 4 chips can rekindle sluggish PC sales, as both consumers and businesses have cut PC spending to weather the economic slowdown.

Increasingly, companies are opting to add value to existing PCs instead of buying new ones.

Ron Myers, vice president of Wallingford Computer Services Inc. in Austin, Texas, said more of his customers are beginning to realize the benefits of improving PCs they already own. Wallingford routinely adds specific pieces of new hardware or software to fleets of PCs belonging to companies that want to optimise their existing PC investments.

"The general consensus is that what [companies] have is good enough. Everyone is trying to be a little more conservative," Myers said.

Myers would welcome Intel price cuts but believes that service for existing PCs and the surrounding computer network will supercede PC refreshes in the short term.

Jim Niekamp, a partner at Cohesion, which assists systems builders such as Wallingford with channel issues, said most system builders have turned their sites from PC refreshes to entire network solutions.

"The solution is not just a PC but part of an overall network," and PC life cycles can be extended further by optimizing the networks they connect with, Niekamp said.

Rather than buying new PCs, companies are looking at alternatives such as outsourcing their PC support "to get the maximum out of the cost of [PC] ownership," McLean said.

Intel's plan to drop prices reflects Intel's need to stave off competition from rivals such as Advanced Micro Devices, but McLean doubts if price cuts will stimulate sales. "I don't know if [the cuts] will drive up market volume," he said.

Mike Daher, vice president of PC maker MicroStandard Distributors, sees another hurdle fast approaching for Intel. Daher said if Intel doesn't work with Microsoft to ensure that its new Windows XP operating system ships with Pentium 4 PCs by the holiday shopping season it will "kill" Intel's fourth-quarter earnings. Intel needs a rich OS similar to XP to optimize the strengths of the Pentium 4 chip; otherwise, customers across the board have "no need" for the Pentium 4, Daher said. If XP and the Pentium 4 do not synch up this year, "2002, by default, will be a good year for Intel, regardless of XP's availability, as companies hit their three-year PC refresh cycle, which began with pre-Y2K PC purchases," Daher said.

The city of San Carlos, Calif. is on such a refresh cycle, with plans to upgrade systems in early 2002 only if Windows XP is available, said Brian Moura, the assistant city manager.

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